RIYADH/DUBAI, 8 November 2007 — Saudi inflation climbed to its highest in at least a decade in September, raising pressure on the world’s biggest oil-exporter to heed growing discontent over prices without straining its currency peg to the dollar.
Rent and food costs pushed inflation in Saudi Arabia to 4.89 percent at the end of September, compared with 4.42 percent in August, Central Department of Statistics data showed yesterday. “There is a marked shift in Saudi Arabia, which had gone through a period of very low or no inflation,” said Monica Malik, senior economist at Cairo-based EFG-Hermes.
“It’s an area that they are concerned about,” added Malik, who plans to review her 2008 inflation forecast of 4.2 percent. Inflation has now accelerated for a fifth month running, with rent prices jumping 11 percent and food 7.2 percent, the data showed.
The central bank is constrained in the fight against inflation by the riyal’s dollar peg, which forces it to track US monetary policy at a time when the Federal Reserve is cutting rates and US currency is tumbling to record lows.
The riyal hit a 21-year high after the Saudi central bank declined to match the Sept. 18 Fed cut.
It matched an Oct. 31 US reduction, but increased the amount of depositor fund banks must keep in their vaults for the first time in 27 years to prevent lower borrowing costs from fuelling inflation.
Last month, Custodian of the Two Holy Mosques King Abdullah summoned officials to explain rising prices and a committee of his advisers called for a national wage hike, a demand that is becoming more difficult to refuse with oil prices at record highs above $98 a barrel.
The dollar has driven up the cost of Saudi food imports from Europe, said John Sfakianakis, chief economist of SABB bank. The dollar hit a record low against the euro and a 26-year trough against sterling yesterday.
The food and beverage index rose 7.2 percent in the year to September to 121.6 points, compared with price rises of 6.6 percent in August and 5.9 percent in July, data showed.
Most retailers typically increase food prices during Ramadan, the Muslim month of fasting, which began on Sept. 13. “It was expected to see inflation rising in September since we had the Ramadan factor,” said Sfakianakis.
“The global rise in food prices is amplifying this increase,” said Sfakianakis.
Domestic factors are also raising inflationary pressures. Economic growth, powered by a near five fold increase of oil prices since 2002, has driven up Saudi property costs.
The rent index rose to 112.6 in September from 101.4 a year earlier, just off a record 12.1 percent increase in August, the data showed.